On 1 January 2021 the company entered into an agreement to lease new machinery under a 5 year lease, with $300,000 payable on 31 December each year. The asset has a useful life of 6 years, and ownership transfers to the company at the end of the lease. The interest rate implicit in the lease is 6% and the present value of the lease payments is $1,263,000. On 1 January 2021 the company sold its head office to a finance company, but continued to use the head office for the remainder of its 20-year estimated useful life under a lease agreement. The carrying amount of the head office on 1 January 2021 was $10 million and the fair value of the asset and sale proceeds received on 1 January 2021 were $11.5 million. 

Calculate the following :

 i. The carrying amount of the right of use asset as at 31 December 2021

 ii. The carrying amount of the head office as at 31 December 2021

 iii. The current liability in respect of the lease as at 31 December 2021 and 2022.

 iv. The finance cost in respect of the lease for the year ended 31 December 2022.

Answer rating: 100% (QA)

To calculate the various financial aspects of the lease and the head office well need to follow acco... View the full answer